Korean businesses made good profits in China between the mid-1990s and the early 2000s because they had secured a foothold there ahead of other global companies. The proximity of Korea and China also helped. But now they are losing their early-mover advantage as more and more global competitors push in while Chinese companies are catching up quickly by investing heavily in R&D.
â—† Scaling Back

More and more Korean firms that once prospered in China are packing up and leaving because they can no longer compete with slick multinationals and Chinese companies.

Early this year, SK Group recalled 40 of its 50 Korean staff and hired local workers instead. LG Electronics shut down most of its mobile business offices in China last year, and Daewoo International sold a cement company it had been operating for 20 years in 2012.

Except for Samsung and Hyundai, the remaining Korean companies in China are not faring much better.

Korean investment in China rose from US$264 million in 1993 to peak at $5.33 billion in 2007. But conditions have changed and investment is dropping.

â—† Changing Market

Income began to rise rapidly in China in the mid-2000s, causing the consumer market to grow explosively. The Chinese government also shifted its growth strategy from bolstering export to fueling domestic consumption, and Chinese products became more affordable than those of foreign makers.

Experts say Korean businesses failed to adapt quickly and come up with products that could appeal to Chinese consumers.

Even for Samsung, mobile phones are practically the only consumer electronics that have succeeded in China. Only a handful of smaller Korean companies like instant-noodle maker Nongshim, confectioner Orion and kitchenware manufacture Lock & Lock are at the top of their game because they successfully gauged changing consumer trends there.

"Korean businesses need to do some hard thinking about what Chinese consumers want," said Yoo Jin-seok at Samsung Economic Research Institute.

LG Household & Health Care started in China with cheap toothpaste but failed. It then switched to premium niche products like toothpaste made from roast bamboo salt, which costs twice as much as local products, and their new strategy worked out.

"It was difficult for us to compete with global players since we did not command as much brand awareness," said an LG staffer. "But we learned to focus on premium products."

Cheap no longer sells in China. Samsung and Hyundai have managed to sell their products because of their attention to quality, but products that are no longer competitive globally cannot survive in China either.

"China has become a microcosm of the global market," said Cho Cheol at the Korea Institute for Industrial Economics and Trade. "Korean companies are losing the race in China because they are losing their competitive edge."